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Tough Economy Could Mean Fertile Ground for Open Innovation, says Haas' Chesbrough

Henry Chesbrough is an adjunct professor at the Haas School of Business at the Universty of California-Berkeley. He serves as the executive director of the Center for Open Innovation. You can check out the first part of my conversation with him in my post of Wednesday 26 November.

Dann: When you teach about the merits of "open innovation," do you have any contrarians from certain industries or cultures? What are their arguments?
Chesbrough: There's no question that on this issue of "should you be 'open' all of the time?" and "should you be 'open' in all parts of your business?", you get a very helpful debate on that. For instance, I had students from the nuclear power industry in France who talked with me about the fact you don't want to have openness in nuclear power. You have someone like Dr. Khan in Pakistan who, it could be argued, was trying to create "open innovation" in nuclear power-- it's not really a good thing when you do that.

In terms of an industry, we get a very good debate in the world of open source between the proponents of "free software" and those promoting "open software." With free software, no one should profit off of the software code, some believe. But there can be other models where you have things in the open domain, but companies can build extensions that are not returned to the open community--and profit from them.

Dann: Do you think during the tough economic times many are predicting for the next few years that open innovation can be a way for new products to come to the marketplace more economically and more efficiently?
Chesbrough: I do. In my own studies of companies who have really embraced this model in the past--companies like IBM, Intel, Procter & Gamble--we see that these companies embrace openness due to their own internal economic crises. They weren't looking to trim a little here and save a little there, they really had to go through a fundamental rethinking of their whole innovation approach in response to, in the case of IBM, nearly being broken into pieces--or in the case of P&G, having its stock price fall by half in 2000 over a four-month period of time. It was in response to these crises that these new processes came to the fore. The next few years in our economy are the kinds of times that could create these crisis conditions for innovation in many, many companies. Companies that rise to the challenge and use the crisis as an opportunity to install new more open more distributed processes will get a leg up over people who take an across the board cut to everything they are doing but don't fundamentally change their processes.

Dann: If someone is not AG Laffley [CEO of P&G], but rather a mid-level executive at a smaller company that has a tough time changing its processes, what are the first few baby steps they can take toward having their company embrace this sort of innovation philosophy?
Chesbrough: A good first step would be to develop an inventory of what you have internally. Many companies have silos; individual projects live in a particular business area or one particular technology group, but are not known or widely shared outside of that. Simply documenting and sharing what's available inside the company is a good first step.

Next, firms should conduct a serious roadmap exercise asking over the next 3-5 years where are our products and services heading? What will we need from innovation and technology to support that roadmap? Where do we have gaps? That "shopping list" is very important as you start to go outside the firm.

Once you have the shopping list, you need to establish a set of processes to go look outside. Here I recommend a multichannel strategy. You might want to experiment with outside innovation intermediaries and put them on the task for you. But you'll want to create some internal capability as well, not just to review what comes in from the intermediaries, but to reach out directly to your own supply base, partners and even local and regional universities.

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